Opening Cross: An Intensifying ITCH—Will You Scratch It, Or Let It Spread?


Nasdaq OMX’s proprietary ITCH data protocol has become something of a de facto standard for equities data dissemination in recent years, with more marketplaces adopting the protocol or ITCH-like alternatives. But will widespread adoption support simpler and more efficient access to markets worldwide, or could this ITCH ultimately become an irritant?

The spread of ITCH is in part due to the rash of exchanges adopting Nasdaq OMX’s Genium Inet and X-stream Inet trading platforms and its associated bells and whistles—a result of legacy exchange trading platform vendors like EFA and Computershare being subsumed into OMX and ultimately Nasdaq like a huge snowball, growing as it rolls downhill. For small or emerging market exchanges without huge internal IT resources, the platform represents a way to not only roll out a modern and full-functioning platform to attract participation from firms who expect these capabilities, but also to adopt standards that make it easier for participants to connect to an exchange’s data and interact with its markets.

ITCH’s use isn’t just limited to those exchanges: As Nasdaq’s use across its equities and options marketplaces shows, the protocol ably supports large, high-volume and high-frequency markets—a key reason why Canadian exchange CNSX Markets is considering ITCH for its Canadian Securities Exchange and Pure Trading ATS. CNSX already uses Nasdaq’s X-stream Inet platform, but uses the FIX Protocol to distribute market data.

CNSX chief executive Richard Carleton says FIX’s “greater richness” will continue to be useful to some firms, but ITCH consumes less bandwidth, making it suitable for the data needs of low-latency and algorithmic traders and market makers.

Meanwhile, Nasdaq plans to roll out an ITCH feed for data from its eSpeed fixed income market (acquired from interdealer broker BGC Partners) this year, to provide lower latency, better performance and the ability to carry full depth data, though Nasdaq will continue to support eSpeed’s existing Multicast and API feeds.

According to Nasdaq, eSpeed ITCH messages offer more detail, making it easier for traders to perform microstructure analysis and identify trading opportunities, while it will also provide a retransmission and recovery mechanism, which is not available on the current eSpeed Multicast feed. In addition, standardizing on ITCH will allow clients that already use it for other markets to reduce development and maintenance requirements.

The fact that ITCH can be used for asset classes beyond equities holds great promise—not just the potential for a single data standard, but that it might also provide a bandwidth-efficient data distribution protocol for high-volume datasets, such as options. With exchanges dropping the FIX-based FAST Protocol like a hot potato after a infringement lawsuit, the industry has lacked an alternative standard, and exchanges have instead adopted proprietary data formats. But while during the lawsuit market participants claimed to be no longer bothered by the options data volumes that prompted the invention of FAST, and that modern network technologies had surpassed the bandwidth limitations, there’s no denying that options data rates are still rising.

The Options Price Reporting Authority’s consolidated feed is projected to require bandwidth for almost 23 million messages per second by July, rising to more than 29 million by January 2016. However, S&P Capital IQ predicts that OPRA data could hit 120 mps by 2020, and has FPGA-accelerated its QuantFeed consolidated feed for OPRA data to handle this.

Wider adoption of ITCH for options might help mitigate these increases, while its established presence and clear ownership would discourage any disruptive infringement claims. But would any concerns of non-Nasdaq markets about adopting a competitor’s protocol hinder it from attaining definitive standard status? Certainly not in the case of CNSX, which recognizes that it needs to follow the lead of its clients—a lead that others will also surely have to follow.

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